Rates stay on hold but experts say a hike is coming

Speculation is mounting in regard to a 2022 interest rate hike, as the Reserve Bank of Australia maintained the official cash rate at its historic low and reiterated that it doesn’t anticipate raising it until the end of 2023, at the earliest.

Reserve Bank governor Philip Lowe acknowledged that inflation was rising due to higher prices for petrol, construction materials and global supply chain disruptions, but said further pick-ups to underlying inflation would be gradual.

Wages growth is also expected to pick up gradually, with the RBA’s forecasts showing it would likely take a significant amount of time for inflation and wages growth to sustainably be at a level that would necessitate an increase of the cash rate from its current level of 0.1 per cent.

“The board is prepared to be patient, with the central forecast being for underlying inflation to be no higher than 2.5 per cent at the end of 2023 and for only a gradual increase in wages growth,” Dr Lowe said.

Finance experts and economists, however, remain speculative that a rate hike in 2022 could be on the cards.

Finsure managing director John Kolenda said he believed the RBA would act sooner than anticipated, with his expectation that the central bank could raise rates on Melbourne Cup Day next year.

“The RBA last lifted interest rates on Melbourne Cup Day in 2010 but the odds of an increase on Cup Day next year will certainly be shortening and there may even be rate rises implemented before then if the Australian economy continues its COVID recovery,” Mr Kolenda said. 

“If the RBA moved earlier than expected with interest rate rises that would certainly have an impact on the economy.  

“There are many thousands of mortgage holders who have never experienced a rate increase, although I don’t expect significant increases when rates are lifted again. 

“Of comfort to consumers is that interest rates remain at record lows and lenders are continuing to battle it out more than ever before and fighting for borrowers with special offers.  

“However, the fixed rate train has left the station with some of the major banks increasing fixed rates.”

A recent Canstar survey showed borrowers are anticipating an increase to interest rates ahead of the RBA’s 2024 forecast, as major lenders have been hiking rates on fixed-term loans in recent weeks.

The survey showed 29 per cent of respondents believed lenders should increase interest rates to slow the exponential growth occurring in property markets across the country.

While on a monthly basis property price growth appears to be slowing, data from CoreLogic showed national home values gained 21.6 per cent in the 12 months to the end of August.

Around 22 per cent of respondents said they believed the market needed cooling, but did not support a rate hike, with support for first homebuyers, tougher restrictions on investors and long-term tenancies their preferred mechanisms.

“Just over half of Australian adults believe the property market needs cooling, but it may be a case of ‘be careful what you wish for’ for the almost one in three Australians who would welcome interest rate increases, as the pursuant mortgage stress would be quite a drag on the economy beyond housing prices,” Canstar Group financial services executive Steve Mickenbecker said.

“The one in five people against interest rate increases are favouring more targeted measures, like extra support for first home buyers and restrictions on investment lending, and less property development red tape to bring more stock onto the market.

“Borrowers should be preparing for the eventuality of higher rates now if they can, by making the additional repayments, before the banks ask for them.  

“Low rates give a great opportunity to get the loan down and build up a buffer that can be redrawn to help with higher repayments if times get tough.”